Why real economic ‘feedbacks’ are investment choices, and Keynes knew

A pair of systems thinking posts on how why the natural way to reform capitalism and bring about its stable and healthy climax. is to turn the world’s accumulated investment funds (the savings of individuals) endowments for their owners purposes other than piling up more money. JLH

@Helen, My systems thinking aptitude is simple minded. Follow the medical practice that cannot fully undersatnd what is going on in a living organism, has no clue of the causation chain of all diseases, but they heavily rely on the self-corrcting and healing nautre of organisms and time as the only cure without telling us how it works. Therefore I see humanity as the disease, but as we are successulf as parasites and society is built on parasitism, it is is difficult to get the message accross: stop being a parasite and acccept that you need to work to get rewarded. Go bakc to the Garden of Eden, check out what the knowledge of good and bad is really about and accept that life on earth is not optimised for the life span of individuals, not veent a happy life, but on the growth of species and offsrpings in a growing variety which was halted by hmans presence and growth in number. Surely, that will not go on like that, Nature will teach you by taking sanity away from us first. the rest will be easy. We are already insane in pursuing excitement, show and appearances and covering up knowledge and giving up common sense.

Jessie Henshaw • @Ferenc – You said to Helene, “Therefore I see humanity as the disease, but as we are successful as parasites and society is built on parasitism, it is difficult to get the message across: stop being a parasite and accept that you need to work to get rewarded.”

Why it’s “difficult to get the message across” is partly the difference between “feedbacks” as “ratios” and “feedbacks” as “investment choices”. That’s what I had mentioned, to which William Ross said “You have succeeded in expressing it well and succinctly.” as “one of the more fundamental differences between how models of systems and real physical systems actually operate. Particularly for growth systems that represent complex construction processes.”

For growth as a construction processes, each part added to the design creates new places where other parts might be added, first in increasing variety and scale and then later in decreasing variety and scale. It’s that natural succession for accumulative design processes, from first creating expanding options to then diminishing ones, that is what one discovers when considering feedbacks as investment decisions, because investment is about building options for the future. They first multiply and then stabilize or diminish.

From that approach, a single cell in the womb first invests its ability to build new cells that create multiplying new places for more kinds of new cells, to create a fetus with a trillion cells in 9 months. It is acting as an ever growing parasite on its host. It survives by shifting to something more profitable in the long run, and becoming part of the host’s strategy for reproduction. The “little parasite” has to alter it’s parasitic investment, in its own self-interest too, ending it’s highest profit behavior to remain profitable in the long run… before the host is sacrificed. If that difference between a parasite and organism were understood in economic terms, I think people who want to build mankind as a successful organism might wish to stop wanting to do business with those who wish to keep being parasites…

Maybe your medical view might be able to piece together the economic difference between the “good” and “bad” parasite from that. It has to do with the cells of the fetus doing what will be more profitable to the whole fetus, changing from investing in consuming more of their host or investing in getting ready to stop consuming their host. I’ve outlined it various essays and blog posts, but it’s been “difficult to get across”.

Note that what happens when investments using profits from consuming their host to build ever expanding abilities to do so, then build an ever shrinking need to do so, involves using the same source of profits. It’s applied differently. It’s a switch to building a self-reliance system to replace the system of ever growing exploitation that growth always begins with.

That self-reliance system is what I’m referring to as an “accumulating endowment”, economic capital that doesn’t need to grow but serves life sustaining purposes, like financial endowments do. You can see it happening as growth shifts from ever bigger to ever smaller steps, for systems that end up maturing at a peak of vitality. Parasitic growth by itself leads to climaxing at a peak of exhaustion instead.

On a growth curve recording it, it appears as a change in the “feedback factor” from positive to negative, at the “inflection point” in the curve. ( pt #5 ¸¸¸.•´ ¯ ) It’s definitely not the formula for the curve recording the successful investment strategy causing it, is the key point William Ross was agreeing with :-)

Welcome, nice to read you here! I like your signals blog. Lots of commonalities with what I have been working on and sharing here lately.

I like your idea of closely watching natural processes of autonomous self-organization, of observing complex systems as physical things, of things that come together and aggregate to create big outcomes and that cannot be reduced to formulas and ‘dead’ data.

I noter you refer to learning and development systems with active internal agents inside and to endowments as growth that then enriches its environment. Have you reflected on ways to put this in place?

I think that this is indeed a way to go, a finite investment plan that enables the ‘game’ to become infinite in a healthy way. Posted by Helene Finidori

Jessie Henshaw @Helene – Yes, I do have a particular method behind what you liked, saying: “I like your idea of closely watching natural processes of autonomous self-organization, of observing complex systems as physical things, of things that come together and aggregate to create big outcomes and that cannot be reduced to formulas and ‘dead’ data.”

You then ask “I note you refer to learning and development systems with active internal agents inside and to endowments as growth that then enriches its environment. Have you reflected on ways to put this in place?” Yes, that’s the subject of a number of my recent blog posts, at http://synapse9.com/signals , like “Cancers or Endowments” and “What goes wrong when growth ends before its limits?”

I’ve actually been describing explicitly what would correspond to the quite widely observed method that natural systems have, of switching to accumulating endowments for their future as growth starts to only build increasing liabilities. For years I’ve been trying to figure out why everyone has seemed to just “skip over” those sentences. In physical systems the “internal agents” do that as a way of keeping the system profitable, and as a better use of their investment incomes instead of compounding them.

That’s also what J.M. Keynes noted would be necessary for stabilizing the world financial system, at such time in the future (for him) when there’s little to be gained by ever multiplying capital any more. He noted that having no returns to add to investment funds would be the default “position of equilibrium” of our economy ( and limit of finance), with the only alternative being to convert investment funds, en-mass, into what we would now call endowments.

I guess he of all people might have “understood the exponential function” and like most others who do, did not understand why the world didn’t follow his advice! The most salient quote from him on it, to my mind, is his saying he didn’t think it would take long for that “marginal efficiency of capital” to approach zero, saying he surmised it would be “comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero”. Chapter 16, 2nd from last pp, The General Theory.

Unless investors choose to use their investment funds as endowments, and thus spend their profits on more worthwhile purposes than just trading on their own accounts to pile up more investments, the economy’s investment funds will never quit accumulating till the economy goes bankrupt. We now see that rapidly happening as investments demand more and more returns at the same time as they multiply more and more problems for the earth and our futures.

I don’t think it’s just been my not having stumbled on the right words before, for saying that in a way people may now be able to understand. I think it’s also because it refers to “feedbacks” as investment allocation decisions,… and not as arithmetic ratios of variables. That’s one of the more fundamental differences between how models of systems and real physical systems actually operate. Particularly for growth systems that represent complex construction processes, not just fluid flows under pressure, “in-physico” feedbacks operate fundamentally differently than “in-silico” ones.